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Innovation Motivation

01/01/2008


Cashing in on Canada’s $3 billion in R&D Tax Incentives

Is your business one of the many that contributed to $13.2 billion in research and development (R&D) funding in Canada in 2006? If it is, how much of your R&D investment did you recover?

Across Canada, R&D is clearly on the rise: 2006 recorded an estimated $28.4 billion in planned spending from universities, businesses, government laboratories and hospitals. In the past decade, R&D funding has more than doubled.

From improved systems, processes and products to increased competitiveness in the marketplace, R&D is an economic invigorator. But innovation doesn’t come without a price, both in time and resources. The federal government’s Scientific Research & Experimental Development (SR&ED) tax incentive program is helping businesses reduce that cost.

Real Savings

The savings available to businesses engaging in R&D can have a measurable impact on your business’ bottom line. While tax credit rates differ based on your business’ size and the province you operate in, the potential savings can be significant.

According to MNP tax specialist Ryan Mackiewich, the overall benefits to businesses can be impressive: “Funding issues don’t necessarily have to hold an organization back from valuable research anymore. The after-tax savings can really open up R&D opportunities for businesses today.”

Ryan adds the tax credits can put real cash in a company’s coffers to help them through the early stages of development.

Determining Eligibility

Eligibility doesn’t have to be complicated. If your organization is innovative with its systems, processes or products, you may be eligible for the credit.

Detailed eligibility criteria can be found on websites for the Canada Revenue Agency (www.cra-arc.gc.ca) and the Department of Finance Canada (www.fin.gc.ca).

The program is open to all Canadian taxpayers carrying on a business in any industry sector, with SR&ED separated into three categories: basic research, applied research and experimental development. Within these areas, only certain activities that support the research are eligible.

Innovative Results

R&D isn’t limited to one industry; it has produced many remarkable results from a range of industries - and works to improve Canada’s competitiveness in the global R&D arena.

Incentive credits have resulted in some unique innovations. These include:

• A manufacturer who developed a new method of cleaning industrial bulk containers.

• A farmer who designed a new process of planting and growing vines to increase root competition.

• A software developer who created a product enabling existing software systems to communicate with new systems.

• An oil & gas services company that investigated new ways of removing contaminants from drilling fluids.


A Work in Progress

While the SR&ED program has been around since 1985, key improvements are needed.

“Historically, there were some tough years for companies that made claims and were funding it challenging working with the CRA. Companies had to do a cost-benefit analysis weighing the cost of making the claim against the overall benefit,” explains Ryan.

As the program is designed to stimulate R&D, not inhibit it, the federal government announced a joint consultation by the CRA and Department of Finance in fall 2007.

The consultation welcomed feedback from stakeholders. Its goal: To identify areas where tax incentives can be improved and the program administration can be made more efficient. Results from the consultations will be unveiled in the 2008 budget announcement.

Guiding You Through the Process
As with other tax incentives, approaching the claim process earlier rather than later can have the best results. If your business is embarking on a new initiative, an advisor can assist with defining, tracking and then claiming R&D expenses.

With the SR&ED program, taking the initiative can make all the difference. Ryan advises looking into the program early and then making a decision.

“Often, we find claims are an afterthought for businesses, as they’re unaware of the money available through this program. If you start early, you can help ensure you don’t miss out.”

By Ryan Mackiewich, Tax Specialist. For more information, please contact Ryan at 1.877.766.9735 or your local MNP advisor.